called the Gillooly Shillelagh.

The market
109) Harding Enterprises
has developeda new product
is follows:
demand for this product given as

Q 240 -4P
demand equal to zero?
a. price is the price elasticity of
At what
demand infinitely elastic?
b. At what price is
demand equal to one?
C. At what price is the price elasticity of
is priced at $40, what is the point price elasticity of demand?
d. If the shillelagh
is linear. The intercepts of the inverse
Answer: a. The demand curve given in this problem
axes are $60 and 240 respectively.
The price
demand curve on the price and quantity
of this demand curve. Demand is infinitely
elasticity of demand varies along the length inelastic at the intercept
Demand is completely
elastic at the intercept on the price axis.
elastic at the half-way point between these two
on the quantity axis. Demand is unit
at a
demand equals zero (is completely inelastic)
extremes. Thus, the price elasticity of
price of zero.

b. Demand is infinitely elastic at a price of $60.

one at a price of $30.
C. The price elasticity of demand equals
80.
d. The price elasticity of demand equals I f P equals $40, Q equals
In this case it equals -4. Therefore, the price
linear demand curve.
is constant along a
-2.
elasticity of demand equals (40/80)(-4)
=

Diff 2
Section: 2.4
266P. At a
equation Qp 3550
-

given by the
The demand for a bushel of wheat in 1981 was
110) demand? If the price of
wheat falls to
what is the price elasticity of
price of $3.46 per bushel, r e v e n u e generated
from the sale of wheat?
bushel, what happens to the
$3.27 per of
the demanded for wheat is 2,629.64 bushels
quantity
Answer: At a price of $3.46 per bushel, for wheat is 2,680.18. The
of $3.27 bushel, the quantity demanded
wheat. At a price per
AQ-3.4650.54 n25

price elasticity of demand at

$3.46 is Ep = 2,629.64-0.19
of wheat is $12,558.554
the generated from the sale
revenue

price of $3.46 per bushel, the generated from

revenue
the sale of wheat is
At a price of $3.27 per bushel, decreases from $3.46 to
r e v e n u e drops by
$3,794.366 when price
$8,764.1886. Wheat of a
decline along the inelastic portion
which is expected when prices
$3.27 per bushel,
demand curve.

Diff 2
Section: 2.4
500,000 45,000P. At
Qp
-

Pokemon cards is given by the equation

111) The demand packs of
for
At $5.00 per pack, what is the price
what is the quantity demanded?
a price of $2.50 per pack,
elasticity of demand?
is 387,500 packs of
cards. At a price
of $2.50 per pack, the quantity demanded
Answer: At price the price
demanded is 275,000. At $5.00 per pack,
a

f $5.00 per pack, the quantity

3 -112,500 -0.818.
is Ep 275,000 2.50
elasticity of demand

Dif 1
Section: 2.4

46
 the equation
desktop personal computers given by
is
of
112) The monthly supply the price elasticity ofsupply?
At a price of$800, what is
Qs 15,000 43.75P. is
The price elasticity of supply
Answer: At a price of $800,
the quantity supplied is 50,000.
07
Es A-0043.75)
=

Diff
Section: 2.4

the equation
Daytona 500 NASCAR event given by
is
tickets to the
113) The demand for the event is given by the capacity ofthe Daytona
QD 350,000 800P The supply oftickets
to
to the event? What is the price
is the equilibrium price of tickets
track, which is 150,000. What at the
What is the price elasticity of supply
elasticity of demand at the equilibrium price?
equilibrium price?
0,000 $250 per ticket. The price elasticity of
to pay P
= -

Answer: Consumers are willing 800

250 The price elasticity of

150,000-80)--1
.

demand at $250 is Ep =|;

P 2500-0.
is Es-
PYAQ
supply 150,000
Diff 2
Section: 2.4

truck manufacturers.
80truck hoods per day for large
fiberglass
Midcontinent Plastics makes
114) to the large truck
Midcontinent sells all of its product
Each hood sells for $500.00. is 0.4 and the price
of demand for hoods
manufacturers. Suppose the own price elasticity

1.5.
elasticity of supply is
coefficients for supply the linear and demand equations.
a. Compute the slope and intercept hood manufactured,
a per unit tax of $25.00 per
b. If the local county government imposed
manufacturer?
of hoods to the truck
what would be the new equilibrium price Midcontinent?
the r e v e n u e received by
hoods change
c. Would a per unit tax on

Answer: Given: P = $500

Q 80 hoods per day
Ed = -0.40 Es 1.5

Demand: Qd = a0 + a1P Supply: Qs =

bo + b]P

AQ to compute a1 and bi.

Use: E -AP

-0.4 a1 1.5 500h1

n
80
80

b1 = 0.24
a=-0.064

Solve for a0 and bo0

Qd = a0+ ajP Qs bo + bjP

80 =a0 -0.064(500) 80 b0+0.24(500)

a0 112b0 = -40
Qs-40+0.24P
Qd 112-0.064P
47
 of the current
b. The tax represents a price increase to the purchaser regardless
price. Thus, the supply curve will be adjusted vertically upward by $25.
Qs =-40 +0.24P or
P 166.67+ 4.17 Qs, then
Pt = P +$25 = 166.67+ 25 + 4.17Qs

Pt = 191.67 + 4.17Qs or

Qs = -45.96 +0.24PP

The new equilibrium price will be:

New Supply =Demand
Qs = -45.96 +
0.24P =112 0.064P =
Qd
Solving yields P =
$519.60 per truck hood

and the tax is $25 per hood,

C Since the selling price in (c) is $519.60
new
As quantity sold has
hood.
Midcontinent would receive only $494.6 per
fallen too, revenues would fall
Diff 3
Section: 2.6
for a ticket. At
Baseball team currently charges $12
small market Major League prices to $15,
115) Suppose that a
tickets to each game. If they raise ticket
to sell 12,000 $12? If
thisprice, they are able What is the price elasticity
of demand at
tickets to each game.
would sell 11,053
they what is the algebraic expression
for demand?

the demand curve is linear,

Answer: The price elasticity of demand is E- 7 212

0 0-947
3 -0.316. If the
bP. Also, we know that
a +
curve is linear, it is in the
form ot QD =

demand
linear expression tor
-0.316|4 =-316. Rearranging the
15,792.
=12,000 +316(12)
=

bP»a
follows: a =
Qp-
demand allows us to solve fora as
expression for
demand as Qp =15,792 - 316P.
now write the linear
We may

Dif 2
Section: 2.6

18
 world demand and supply elasticities for crude oil are -0.076 and
116) Suppose that the short-run
0.088, respectively. The current price per barrel is $30 and the short-run equilibrium quantity
demand and supply equations.
23.84 biliion barrels per year. Derive the linear
is
Answer: If the demand curve is linear, it is in the form of Qp =a+ bP Also, we know that

(P -0.076 | =-0.060. Rearranging the linear expression for

demand allows us to solve for a as follows:

a = Qp- bP > a = 23.84 0.060(30) = 25.640. We may now write the linear expression

for demand as Qp = 25.640 0.060P. If the supply curve is linear, it is in the form of

Os =c+dP. Also,
we know that E =4 d-t0.088 0.070.

follows:
Rearranging the linear expression for demand allows us to solve for cas
c= Qs dP »c= 23.84 0.070(30) = 21.740. We may now write the linear expression

for supply as Qs = 21.740 + 0.070P.

Dif 2
Section: 2.6

elasticities of crude oil are -0.906 and

117) Suppose that the long-run world demand and supply
barrel and the
0.515, respectively. The current long-run equilibrium price is $30 per
equilibrium quantity is 16.88 billion barrels per year. Derive the linear long -run demand and
curve you derived above consists
of
supply equations. Next, suppose the long-run supply is:
competitive supply and OPEC supply. If the long-run competitive supply equation
Sc 7.78 +0.29P, what must be OPEC's level of production in this long-run equilibrium?
Answer: If the demand curve is linear, it is in the form of Qp =a+ bP. Aso, we know that

-0.906 -0.510. Rearranging the linear expression for

E-
=

30
demand allows us to solve fora as follows:
a = Qp- bP > a= 16.88 + 0.510(30) = 32.180. We may now write the linear expression

If the is linear, it is in the form of

for demand as Qp = 32.18 -

0.510P. supply curve

Qs=C+ dP. Also,

we know that 16.880.290.
E-4d--0515 30 020

follows:
Rearranging the linear expression for demand allows us to solve for c as
c Qs - dP =» c = 16.88 0.290(30) =8.18. We may now write the linear expression for

is the difference between the world

supply as Qs 8.18 0.290P. OPEC's supply
= +

We know that world supply at $30 is 16.88.

supply and competitive supply at $30. is
$30 is 7.78 +0.29(30) 16.48. This implies that OPEC's supply
Competitive supply
=
at
0.4 billion barrels per year at $30 in this long-run equilibrium.
Dif 3
Section: 2.6

the domestic market tor corn.

118) The U.S. Department of Agriculture is interested in analyzing
The USDA's staff economists estimate the following equations for the demand and supply

curves:
Qd = 1,600 - 125P

Qs 440 + 165P

measured in millions of bushels; prices are measured in dollars per bushel.

Quantities are

a. Calculate the equilibrium price and quantity that will prevail under a completely tree

49
 market.
b. Calculate the price elasticities of supply and equilibrium values
demand at the
bushel support price in place. What impact will this
C.Thegovernment currently has $4.50
a

Wil the government be forced to purchase corn under a

support price have on the market?
them to buy up any surpluses? lf so, how much?
program that requires
Answer: a. Set Qd = Qs to determine price.
1600 125P = 440+ 165P
1160 290P
P-4

Obtain Q by substituting into either expression.

Qd 1600 - 123(4)

Qd 1600 -500
Q = 1100

P $4, Q" =1100

4
b. For the Own Price Elasticity of Demand E = -125 1100 -0.45 (approximately)

For the Own Price Elasticity of Supply E = - 165 4 = 0.60

1100

c. Calculate Qd and Qs at the $4.50 price

Qd =1600 125(4.5)
Qd = 1037.5

Qs 440 + 165(4.5)
Qs 1182.5
1182.5 1037.5 = 145
surplus =Qs -

Qd =

million bushels that

The support price would create an excess supply of 145
the government
would be forced to buy.
Diff 2
Section 27
122) The current price charged by a local movie theater is $8 per ticket. The concession stand at the
theater averages $5 in revenue for each ticket sold. At the current ticket price, the theater
typically sells 300 tickets per showing. If the theater raises ticket prices to $9, the theater will
sell 270 tickets. What is the price elasticity of demand at $8? What happens to ticket revenue if
the theater increases ticket prices to $9 from $8? What happens to concession revenue if the
theater increases ticket prices? If the theater wants to maximize the sum of ticket and
concession revenue, should they raise ticket prices to $9?

Answer: The price elasticity ofdemand at $8 is E=A :-0.8

Initially, ticket revenue is P'Q = $8(300) = $2,400. If ticket prices are raised to $9, ticket
revenuebecomes PQ =$9(270) = $2,430. Thus, if ticket prices are raised to $9, ticket
revenue increases by $30. At $8, the concession stand will average $1,500 per movie

showing.If ticket prices are raised to $9, the concession stand will average $1,350.
Thus, concession stand revenues will fall on average by $150. If the theater wants to
maximize the sum of ticket and concession revenue, they should not raise ticket prices

$9
Diff 3
Section: 2.7